Lionsgate’s costs rising from Icahn fight

Minimajor blames takeover battle for Q2 loss

While revenues grew in its fiscal second quarter by 25%, Lionsgate reported Tuesday a net loss of nearly $30 million for the period ending Sept. 30, in part because of actions taken to fend off activist shareholder Carl Icahn, who is looking to take control of the mini-major.

The company blamed the loss on higher marketing costs for three films, including “The Expendables,” but it also attributed the drop to $4 million in corporate defense costs and an equity interest loss of $20.7 million related to a debt-for-equity swap the company instituted in July that effectively diluted Icahn’s growing stake in Lionsgate, from 38% to 33%.

Icahn challenged the swap in a court in British Columbia, where Lionsgate is headquartered, but the court ruled against him earlier this month. Icahn is appealing.

In the previous quarter, Lionsgate said it incurred $7.3 million in defense costs fighting Icahn and $23.3 million more in compensation costs that represented the accelerated vesting of options triggered by change of control provisions.

Executives did not address Icahn in a press release put out after market close on Tuesday, nor did they during a conference call with analysts on Wednesday morning.

The company’s earnings report comes a day after Lionsgate disclosed the date for its long-anticipated annual shareholders meeting, Dec. 14. It is widely believed the meeting will be a show-down between Lionsgate execs and Icahn, who is waging a proxy fight and attempting to put his own slate of directors in place. He is pushing to merge Lionsgate with struggling studio MGM, which has entered a pre-packaged bankruptcy with plans to emerge in the next few weeks partnered with Spyglass Entertainment.

In the second quarter, Lionsgate’s revenues rose to $456.3 million, driven by box office, international and TV production.

“We continued to generate strong momentum across our diverse slate of businesses, especially in television and channels,” Lionsgate CEO Jon Feltheimer said in a prepared statement. “And hit films such as ‘The Expendables’ and ‘The Last Exorcism’ underscored the diversity of our film slate and the strength of our financial model.”

Other highlights in the quarter:

n Motion picture revenues were up 23% to $341 million, in big part on the box office performance of “The Expendables,” which has grossed $102 million;

n Television revenues, mostly from pay TV, were up 15% in the quarter to $78.3 million on the strength of “Precious,” “Brothers,” “Gamer,” Tyler Perry’s “I Can Do Bad All By Myself” and “Saw VI”;

n TV production revenue increased 30% to $115.3 million, in part on the licensing of 13 episodes of “Weeds” (sixth season) and 10 episodes of “Mad Men” (fourth season);

n Home entertainment continued to be a problem. Revenues were down 5% to $132.1 million. They were hurt by having no new TV-to-DVD titles in the quarter;

n Lionsgate’s film backlog as of Sept. 30 stood at $426 million. That includes revenues not yet booked from the contracts of licensed films and TV shows.